2014 (2) TMI 1022 - AT - Income Tax

Disallowance u/s 10(10B) of the Act - Premium paid on Keyman Insurance Policies - Revenue was of the view that the policies were not Keyman Insurance Policies as given in the Explanation to section 10(10D) of the Act Held that - Once the assessee has bought a policy under a life insurance scheme, then whether the insurance company is making investment in mutual funds for capital appreciation or under any other investment scheme, will not make any material difference - it is clearly evident from the clauses of that it is these policies that it is for life insurance only - if the assessee surrenders the policy within the period of three years, then there is no surrender or maturity value. Under both the policies, the maturity value up to three years is zero - Once it is an admitted fact that the policy has been surrendered and it has been assigned to the policy holders on which no maturity amount or surrender value has been received, then such an observation of the CIT (A) does not make any difference - once the assessee after nursing these policies for some time by paying premium thereupon, has been assigned to the partners, then also the payment of such a premium has to be allowed as deduction Relying upon Commissioner of Income-tax Versus Rajan Nanda 2011 (12) TMI 392 - DELHI HIGH COURT thus, the order of the CIT(A) set aside and the assessee is eligible for claiming deduction towards premium paid in respect of Keyman insurance policy and should be allowed accordingly Decided in favour of Assessee.

Summary

Issues:
Challenge to disallowance of premium paid on Keyman Insurance Policies under section 143(3) of the Income Tax Act, 1961 for the assessment year 2006-07.

Analysis:
1. The assessee, a partnership firm, challenged the disallowance of Rs. 10,00,481 premium paid on Keyman Insurance Policies. The Assessing Officer noted that the policies did not meet the conditions set by LIC and IRDA circulars. He observed that the policies were not term policies but unit-linked investment schemes, thus not qualifying as Keyman Insurance. The Commissioner (Appeals) upheld the disallowance, emphasizing that the policies were investment schemes, not life insurance, and the benefits did not accrue to the firm. The partners were assigned the policies, and no maturity value was received by the firm.

2. The assessee argued that the IRDA circular prohibiting partnership insurance under Keyman insurance was issued after the policies were purchased. Citing a High Court decision, the assessee contended that even if policies were on partners' lives, the premium should be deductible. The Departmental Representative relied on IRDA guidelines and argued that maturity amounts go to the policyholder, not the firm, hence premium deduction is not allowed. The Tribunal noted that the policies were life insurance policies, purchased before the IRDA circular, and the High Court decision supported premium deduction for partner policies under Keyman Insurance.

3. The Tribunal held that the IRDA circular did not apply retroactively to the assessee's policies. Citing the High Court decision, it allowed the premium deduction as the policies were under Keyman Insurance. It rejected the argument that the policies were investment schemes, as they were life insurance policies. Since the policies were surrendered within three years with no maturity value, the assignment to partners did not affect premium deduction eligibility. The Tribunal set aside the Commissioner (Appeals)'s decision, allowing the premium deduction of Rs. 10,00,481 for Keyman insurance policies.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the premium paid on Keyman Insurance Policies was deductible, as the policies were life insurance and purchased before the IRDA circular. The Tribunal emphasized that the policies met the Keyman Insurance criteria, rejecting the argument that they were investment schemes. The assignment of policies to partners did not impact premium deduction eligibility, as no maturity value was received.